Breaking up is hard to do: the impact of a family split on shared passions

James Carroll, Joint Managing Partner in the Russell-Cooke Solicitors, family and children team. Pippa Garland (1)
Multiple Authors
7 min Read
James Carroll, Pippa Garland

What happens when a shared passion, for example a family foundation or collection of artworks, is put at risk as a result of a family conflict, such as a divorce? In the fifth blog in our series reflecting on themes from our Generation Game report and roundtable event, Pippa Garland and James Carroll look at where the key threats lie and how to limit any adverse impact.

Following her divorce from Jeff Bezos, Mackenzie Scott publicly declared that she would donate vast sums from the settlement to good causes. The speed and scale of her giving has been exceptional, and the recent $436 million commitment to Habitat for Humanity, her largest publicly disclosed donation to date, shows just how serious that pledge was.

Divorce in this case has clearly been a spur for Scott to champion causes she cares passionately about and to use her platform and wealth for their benefit.

But where a separating couple shares a passion – whether that is for philanthropic endeavour, art, collectables or cultural initiatives – divorce can all too often disjoint not just a family but the goals and outcomes the family hopes to achieve through deploying their wealth.

Shared philanthropic endeavours

Significant potential for conflict arises when a couple are both involved with a charity – especially one such as a family foundation that they have set up together and where, for example, both individuals are trustees of that charity.  The same goes where other members of the family are engaged in the charity such as children or extended family members.

Any assets donated to charity before separation will be protected by the charity’s ‘shell’, and will no longer form part of the couple’s estate to be divided and shared on divorce. Rightly, once donated to charity, any such wealth can only be used to further the charity’s purposes. In that way, the assets are protected, but they are also unavailable for distribution or sharing between the separating couple.

A split can nonetheless  hamper a charity’s ability to operate, and can cause significant issues for the other ‘neutral’ (or even ‘non-neutral’) trustees on the board. A court is not only unable to divide charity assets, it is also unable to divide a charity itself. This is because the court’s distributive powers only apply as between the spouses and as regards assets they have or have an interest in. Because settlors and trustees don’t own charities, even if the spouses do have such roles, neither the charity’s money nor the charity itself is up for grabs or carving up.

That said, provided that it furthers the charity’s aims, in working together to reach a settlement  a couple can decide to split the charity, with one spouse using ‘their’ half to establish a new philanthropic venture of their own. Such a route needs careful planning and  the governance issues can be fraught. Trustees owe duties to the charity, and assets can only be given away if it is in the charity’s best interests to do so. The long-running Cooper-Hohn divorce demonstrated just how complex these governance issues can become, where private life begins to negatively impact the running of a charitable (or other) operation. Both legalities and realities need to be considered. The Bill & Melinda Gates Foundation itself announced a two year ’trial period’, to see if Bill Gates and Melinda French Gates can continue to work together as co-chairs and trustees of the charity following their divorce. If they cannot, the understanding is that Melinda will resign but will be supported in her philanthropy from Bill’s own personal resources.

While they are difficult conversations to have, it is always worthwhile openly discussing potential worst-case outcomes at the outset of establishing a charity or a family foundation. Such early steps to, say, take potential divorce or any separation of the settlors/trustees if they are in a personal relationship into account when drafting the constitutional powers and roles of individuals can provide peace of mind for the family, for the future charity itself and also for its stakeholders.

Investments of passion

But what about other shared passions, beyond philanthropy?

Collections of various kinds, such as an art collection, have always formed part of the portfolios of wealthy families, with Credit Suisse estimating that almost 60% of UHWNIs allocate between 2–10% of their total wealth to collectibles.

However much a personal passion, art is also a asset and assets are divided on divorce. We are seeing this very situation play out publicly now with the sale of the Macklowe art collection – estimated to be worth $600 million.

Taking such a collection as an example, when it comes to dealing with it in a divorce, the value, use and source are relevant. To some extent whether the passion for the artwork is shared is an understandable influence on how it should be divided.  Creative solutions abound particularly where couples are working together constructively to advance a sensible separation.

Where division can’t be agreed and parties opt to fight it out rather than sort it out then a division is likely and a sale by default is possible, particularly where there is disagreement over values or ultimate ownership.

Legacy giving

Many private collectors who wish their collections to remain intact and who want to leave behind a legacy which articulates their values and passion, choose to make a bequest to a museum or other charitable entity. Others will loan private collections to cultural institutions during their lifetime, often as part of a strategy which aligns a passion for a particular item or area with philanthropy.

Bequeathing a collection in advance can be one solution to ensure it stays together in the event of a divorce as, since the collection no longer forms part of the couple’s estate, it cannot be separated. Clearly, however, neither can its value be recouped and used to provide for any agreed settlement. Bequeathing  a collection as a tactical strategy to rid oneself of assets in a divorce is a highly dubious and unwise strategy. 

Even legitimate bequests, though, can bring with them the potential for disputes.

For example, a museum in Milan is facing action over 600 works which it received through a legacy bequest, the validity of which has been challenged by the estate’s heir.

These types of situations can be further compounded where a family estate is involved – for example where any form of bequest or giving may conflict with the terms of an existing will. If a testator intends to leave a collection to charity in a will, but doesn’t leave sufficient cover for a surviving spouse or dependent then there may be grounds to challenge the will. Settling collections into a trust with a corresponding trust deed specifying ownership and, in some cases, what steps are to be taken in the event of familial conflict, can help provide surety.

Mitigating conflict

When faced with a divorce or any relationship change, working amicably together always enables more beneficial outcomes to be considered. Indeed – charitable giving can even form part of any tax strategy (for example by taking advantage of tax efficient legacy giving to reduce a future IHT bill). Mediation creates opportunity for creative approaches to conflict and allows for sensible tax planning – opportunities which are too often lost in litigation.

Divorce is, however, far from the only potential cause of familial conflict. Conflict can arise in any family relationship – for example between the older generation and the younger to whom wealth will one day be transferred. Neither is sensible planning or mediation confined to separating couples – supported conversations focused on consensual outcomes are a hallmark both of civilised society and a fit for purpose justice system.

Philanthropy is just another potential cause of conflict. For instance, the beneficiary of an estate may discover on reading a will that their assumed inheritance is about to be given away to a charitable cause. More widely, a family may have taken a ‘traditional’ approach to philanthropy, with an emphasis on the arts and culture, and which may now be challenged by the next generation more squarely focused on ESG, diversity and inclusion, or taking direct action on climate change. There may also be growing desire from the next generation to shift a family’s investment or business strategy to align profit with purpose.

Mediation can help with these wider family disputes too – it’s not just for couples, it’s not even just for families.

But by bringing the younger generation into discussions at an early stage, so that differences of opinion can be resolved and shared values can be established, disputes can be avoided in the first place. Children may be assigned trustee roles over one or more of the family’s charitable or philanthropic structures, or could be involved through a junior family members’ forum, where they can act as advisers and consider grants.

This is really the golden rule in the mitigation of any potential familial conflict, including divorce; openness, and a willingness to engage with the difficult issues and potential risk scenarios before they actually emerge.  

Breaking up is hard to do, but the process can be eased with sensible steps taken early on to communicate clearly and establish frameworks around how assets are held and by whom, and how philanthropic activity will be managed, should any major changes to the family make-up occur.

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‘Generation Game’ blog series

Welcome to our new Family Office blog series picking up the themes from the ‘Generation Game’ report compiled in 2021. As wealth continues to be transferred...

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